Amazing! I have been watching the spat between Google’s YouTube and Warner Music Group (s WMG) play out in the media — both online and in its offline variants. The bottom line of this corporate he said she said is that there are no more music videos that feature Warner artists such as Madonna. And a lot of it is two parties crying over spilt milk.
Warner complains it doesn’t make any money from Google (s GOOG), even though music videos are extremely popular on YouTube and are major drivers of traffic to the site. According to The New York Times, Warner made $639 million in digital revenues for fiscal year 2008, of which less than 1 percent (or less than $6.39 million) came from YouTube. Another Fellow music labels might soon follow Warner’s suit and try and renegotiate with YouTube or opt out all together.First of all, this complaining is high-grade manure. All record labels got a piece of YouTube right before the company was sold to Google in October 2006 — a stake that translated into about $50 million each. That’s $25 million a year for 2-year contracts. If the record labels were smart they would have made much more money — Google shares topped $700-a-share vs. $420 a share at the time Google snapped up YouTube.
I can totally understand why Google is asking Warner to take a walk — they feel like being held up by by local mafioso for more baksheesh and don’t want to play ball. At the same time, the record labels, too, have a legitimate gripe. Google has failed to monetize the professionally produced, highly popular music videos — a much easier sell than kitty videos to brand advertisers.
The bottom line is — Google’s YouTube has the traffic (and the eyeballs) and record labels have the content. The two need each other as much as baseball needs the Yankee dollars. So get on with it, guys — and stop crying over spilt milk.
Om, did you bother proofreading?
“Warner complains it doesn’t any money from Google” should be “Warner complains it doesn’t [make] any money from Google”
“even though videos are extremely popular” should be “even though [its] videos are extremely popular”
“which less than 1 percent (or less than $6.39 million) came from YouTube $6.39 million” should be “which less than 1 percent (or less than $6.39 million) came from YouTube”
“Another music labels might soon follow Warner’s suit and try and renegotiate with YouTube or opt out all together.” should be “[Other] music labels might soon follow Warner’s suit and try and renegotiate with YouTube or opt out all together.”
“First of all this complaining is high grade manure” should be “First of all, [all] this complaining is high grade manure”
“they feel like being held up by by” should be “they feel like being held up by”
Hey Trex
Thanks for the catches. I admit, a very poor job on proof reading. Sorry about that…. just hit send without re-reading the post. Not likely to repeat that mistake next time!
Baksheesh is a term used to describe tipping, charitable giving, and certain forms of political corruption and bribery in the Middle East and South Asia.
Youre absolutely right. Google and Warner are both being childish. It’s silly how bad they need each other but for some reason, they can’t seem to work it out.
Nice site.
Josh
“”a stake that translated to about $50 million each.” – this an unconfirmed NYT story via Liz Gannes at GigaOM (not exactly the equivalent of an SEC filing brother OM!) – more aptly referred to as speculation. There is no factual information on an equity stake (unless of course you show your audience something from WMG filings ). They did get a few greenbacks packaged as upfronts, etc (the obligatory baksheesh!). – but NOT an equity stake.
OM – the real story on this WMG-YouTube matter is yet to be written – only way to look at this one is “in the rear view mirror”. So while most will speculate – the real story will not be heard for some time….
Cheers –
@G
While you are right on the assertion that it is not a SEC filing, this was widely reported story and since then I have talked to many music industry insiders who have said that the labels did get a piece of the action. Other small start-ups have always had to pay the labels, the latest being imeem, a story that was widely reported in the WSJ.
However, you speak with some insider knowledge on the issue of “money they got” and if you want to share some details, drop me a line.
OM – Yes Imeem and Lala gave up equity stakes for WMG investment ($15 MM and $20MM respectively) – and did show up in WMG filings. But this GooTube one is a whole different story. And please don’t confuse my “domain knowledge” for insider knowledge 🙂
@G
It is common knowledge that domain knowledge has roots in insider knowledge. 🙂 so what is indeed the gootube story?
OM – here is one among many “domain knowledge” driven hints – wait for the Viacom-GooTube proceedings to get underway. You will see this one in the rear view mirror soon.
Remember BMG doling out hundreds of millions because they took a stake in the old Napster…. Use that frame of reference – and you will understand why an equity stake in YouTube ends up on the liability side of the balance sheet as opposed to the asset side.
Imeem went from sacrilegious to alter boy overnight – and Lela was always the parochial school type (selling CDs to start off). But YouTube has been a heretic – that’s the difference.
Ok Brother OM – no more baiting me – that’s about as much as I should be rambling. Give me your next post will ya.
As I used to say while managing money on Wall Street – the clarity of hindsight is magnificent!
Cheers.
Google doesn’t need Warner’s or any of the labels’ content to sustain traffic on YouTube. The labels should wake up and realize this is one of the very last opportunities to monetize music on the web, so they’d better take what they can get.
Honestly I can’t wait for the ultimate demise of the labels. They’ll never wake up and realize their old model of music distribution died years ago, and that their power is gone. They’ll flail about, suffocating themselves with their own ignorance and greed. I used to work in music distribution, so I’ve been watching this pathetic charade for about ten years now and nothing ever changes.
See this interesting view about the Music Industry in 10 years:
http://disruptionmatters.com/2008/12/23/music-2019/
Labels want to make the same kind of money they made selling expensive CDs. No way!
YouTube’s ContentID technology backfired. Dont-ask-Dont-tell is the way to go. Particularly since YouTube is now making over $20M/month via ads on their search pages. they can afford to boot Warner and not lose any sleep.
“…..there are no more music videos that feature Warner artists such as Madonna”
i just typed in Madonna on YouTube and a Madonna video popped up – Material Girl – how appropriate.
Me thinks you are mistaken about YouTube’s honesty and ability to screen copyrighted material (pun intended).
YouTube is using copyrighted material and like Napster, using it, for the most part, without the owners consent. I hope Viacomm wins their $Billion dollar lawsuit
Google should not back down. I’ll repeat: Google should NEVER back down.
Content means nothing today, and it never has. In all of commercial art history (movies, music, etc), the sole winners were those who controlled the distribution. If not for payola, most of the major artists we all know and love would not have made it into the distribution chain, regardless of how good they are.
Payola is mostly dead today, because distribution is no longer in the hands of the few. Yes, Google and others are significant market share of distribution media, but they’re not the only players. Anyone can theoretically host and distribute their own commercial art. I know of, and have invested, in 3 artists myself who are making decent bank hosting and distributing their own content.
Warner is dead in the water. CD sales won’t last forever. iTunes takes a large chunk. Guitar Hero proceeds will get competitively less profitable as more artists lowball others. Payola is mostly dead, although still exists on some level.
Google does not NEED content to push ads for revenue. Skinny queens dancing, or someone’s 3 year old trained to swear, do well enough. If you look at the top viewed videos on YouTube, it’s rarely anything commercial or “popular.”
Google has the distribution, and anyone who doesn’t kowtow to their demand should eat it. I’d love to see Warner try to build their own server farm/cloud to distribute videos. It won’t happen.
Even better, copyright is dying the slow, painful death it should have. Thankfully, copyright will be a failed experiment for the past 250 years, and publicly-distributable information will no longer be a profitable venture, but a great marketing asset.
Without music videos, YouTube would lose a lot of market share. If all the record labels decided to strike out on their own, the eyeballs will follow them. I think it’s inevitable that that will happen, because content owners would make much more money that way. In the long run, YouTube will be good for homemade videos and that’s about all. Hulu is already eating into their market share, and that’s just the beginning.
CONTENT MEANS EVERYTHING. Thats why there is this fight!
Radio, TV, Cable, Satellite, YouTube, CDN, UGC – content rules – that’s why there is a grab for quality content from studio’s.
That’s why millions of dollars are being spent on licensing fee’s for top quality content by the big CDN’s
‘An Inconvenient Truth’ Al Gores docu-flick – – over a 100 million downloads! So that alone is worth $200Million bucks lost in download fee’s at a $1.99 – probably more!
All studio’s are switching their business models to include online streaming and downloads – it’s a better business model for them – for music – no CD’s to cut, no jewel boxes to buy, no inserts to print and no shipping costs or returns!
Do not confuse radio air play / payola with distribution – radio did not distribute – they broadcast! BIG DIFFERENCE.
You are right about distribution channels changing, — no more Tower Records or Sam Goodies or any other record retail chain – all gone, only Target and WalMart left!
Movie studio’s were long ago stopped from owning theaters. But now – they can set up an online streaming site and stream direct B2C or B2B/CDN!
Warner and other studios/record companies are alive and well and making more money now than ever – because they closed the free file sharing sites like Napster down – and they will close YouTube down as well for the same thing – illegal copyright infringement.
It’s not just Warner’s – it’s everyone from European football (soccer to you), Paramount, CBS, BBC, NFL, NBA, AP, Rueters – and Spongbob!
And when they win – they will close down the access via the ISP’s – just like Napster – and when Viacomm wins the $Billion lawsuit and all the others follow suit – YouTube, like Napster will become a liability. $20Million a month in adrev is chicken feed!
But I agree with you that the studio’s cannot seem to agree on anything together – remember Intertainer – that was a 90’s studio collaboration company funded by the top five – to harvest all studio content online and stream – and in the end everyone sued each other.
So it does require a platform like YouTube or Napster to push through the new distribution or broadcast model, but in the end it will die in a heap of lawsuits and be a mere shallow shadow of itself inside of three years.